Tom Baker is a Masters student reading MSc Russian and Eurasian Politics and Economics. His geopolitical interests are primarily focused on post-Soviet Eurasia, with an eye on Russia and Central Asia in particular. Tom currently serves in the committee of King’s College London Geopolitical Risk Society.
Nordstream 2, Russian state energy company Gazprom’s new gas export pipeline is the final stages of construction, but much is yet to be decided about its long-term future. Planned to extend from Ust-Luga in Russia to Lubmin near Greifswald in Germany, the near $11 billion initiative has become a defining geopolitical flashpoint between Europe, Russia and the US. The project runs next to the pre-existing, Nordstream 1 pipeline, through the Baltic sea, with the potential capacity to carry 55 billion cubic meters (bcm) of gas per year, and 110 bcm per year for the 2 combined pipelines. Strong, cross-party US opposition to Nordstream 2 based on fears of creeping Russian influence is not fading. Eastern European nations, as well as the UK and France fear the Kremlin tightening their grip over the European gas market, as well as Ukraine losing significant transit fees from existing pipeline infrastructure. Within the EU, opinion is generally negative, with Germany becoming ever more isolated in its support of the project. Furthermore, the Russian poisoning and imprisonment of opposition figure, Alexei Navalny, as well as very recent aggression towards its neighbours has pushed Gazprom’s latest endeavour to heights of international controversy. This article aims to assess to likelihood of completion, and its geopolitical impact not only for Europe, but the transatlantic relationship and beyond.
The Biden administration followed its predecessor in condemning Nordstream 2, with secretary of state, Anthony Blinken vowing at his senate confirmation hearing “to do whatever it takes to prevent completion”. Tough rhetoric has been reinforced with action. In the first days of 2021, the Congress forced increased pressure on Russia by expanding sanctions, targeting any company willing to certify parts of construction or provide facilities, insurance or inspection of Nordstream 2. Unusually-united US condemnation of the initiative is partially in response to repressive treatment and mass arrest of Russian citizens following the imprisonment of Alexei Navalny, but also in order to reduce creeping Russian political and economic leverage over Europe. Fears of further weakening Ukraine economically by energy flows bypassing the nation and subsequently stripping it of substantial energy transit fees further lament US geopolitical concerns. American policymakers are also keen to capitalise on the booming US liquefied natural gas (LNG) industry by exporting to Europe- a market in which it would be directly competing with Nordstream 2 gas flows. Within the US congress, some are calling for consultation with European partners before any fresh sanctions are passed. The Biden/Harris administration must exercise caution in order to avoid making unilateral decisions which could be perceived as an erosion of European sovereignty. Furthermore, the US should tread lightly in regard to the potential effects of economic sanctions hitting western companies involved with construction such as Anglo-Dutch Shell, Austrian OMV and their subsequent subsidiaries. The US has been firm on Russia over the pipeline expansion, but is yet to strike the killer blow. It is likely that US will continue to lean on Germany, but it seems probable that they will not sink the project. The US could look to influence the main beneficiaries, Germany and Russia, into supplying benefits for Ukraine, who are set to be replaced by Germany as a primary transit nation for Russian gas flowing into Europe. The US will demand conditions which seek to enshrine EU energy security.
Russia has been the main supplier of gas to Europe since the 1970s, with Germany a primary customer of the post-Soviet state. Merkel has niftily navigated the minefield that is Nordstream 2 by publicly supporting the project as a purely ‘commercial deal’, whilst simultaneously condemning the treatment of Alexei Navalny. The German chancellor has consistently stressed the importance of consolidating European energy security for future generations, with Nordstream 2 playing a vital part in that. However, her unrelenting support for the project has come under fire domestically, as well as on the international stage from big EU players such as France and the UK. The pressure is strong on Berlin, with domestic critics perceiving Merkel to be further isolating her nation in Europe and alienating the United States. Having said that, she has so far been able to keep the peace within the grand coalition of the Christian Democratic Union (CDU), Social Democrat Party (SDP) and Christian Social Union in Bavaria (CSU) of which she heads in the Bundestag. Despite Merkel being set to stand down as chancellor in September and the looming federal elections, a change in policy seems unlikely, despite overt opposition from the Green party. The new chairman of the CDU, Armin Laschet is touted to take the reins, suggesting a continuation of his predecessor’s program. Laschet has called for a less ‘confrontational’ European approach to Russia and is a staunch supporter of Nordstream expansion. The pressure continues to rise, and even with Russia expelling Swedish, German and Polish diplomats in early January, Merkel maintains that Germany is behind it at least ‘for the time being’.
Firmly in the grip of Russian hybrid warfare, economic dependence and increased aggression, Ukraine and vast swathes of Eastern Europe are set to lose most from Nordstream 2. Ukraine, Poland, Czechia and Slovakia oppose the project due to losing their status of transit countries and later down the line, they fear the closure of the current Ukrainian route into the EU; resulting in a lack of cheap Russian gas. Proponents of the pipeline cite the ageing and decaying state of key energy assets in Ukraine as a reason for their support, but to Ukraine, the economic and political costs are simply too high. Ukrainian deputy Economic minister, Taras Kachka, described Gazprom’s activity as “100% anti-Ukrainian”. Zelensky’s government perceive the move as an aggressive manoeuvre to use energy as a tool for political pressure. Russia’s current reliance on Ukraine as a transit nation for gas exports provides it a key strategic deterrent against the Kremlin stepping up aggression in the hybrid war and in ‘frozen’ conflict areas such as Luhansk and Donetsk in the east of the nation. With this advantage gone, Ukraine faces yet another existential threat from their neighbours. Ukraine might just be able to live with a completed Nordstream 2, but it would be essential that the EU integrate it further into Europe’s interconnected gas markets. Within the European market, prices are set at trading rates, rather than being dictated by Gazprom, like in the current situation. Ukraine has taken significant steps in reforming its gas market to conform to EU rules. Closer alignment must be set in motion if the pipeline is to be completed. Ukraine is currently in the weak position of being most adversely affected by Nordstream 2, and faces an existential fight for survival. However, with its unique geopolitical importance for the West, the US may be inclined to lean on Germany to make sufficient concessions become reality.
In terms of supply and demand in Europe, is another Russian pipeline in fact necessary? The initiative has been conceptualized not as a necessity for now, but to meet growing gas demand in the future. There is a growing consensus amongst analysts that EU gas demand will not grow as fast as previously predicted. Forecasts estimate that consumption will only gradually return to pre-COVID-19 levels, and will remain stable for considerable years to come. Nordstream 2 remaining idle for a significant amount of time would not present a significant danger to energy supply. Russia is only winner from the pipeline’s completion. With its ability to significantly increase delivery capacity, it dominates other EU suppliers such as Qatar and Norway. For Gazprom and Putin, production is not the problem, but finding new export markets. For 2017, BP reported Russian gas production to be at 636bcm, while only 425bcm was consumed. BP project 2040 production to top 851bcm with consumption remaining low, at 464bcm. This extra capacity, primarily sourced from the Yamal Peninsula developments is the driving force behind the vision of Nordstream 2, as well as the gargantuan $400 billion deal to supply China with natural gas, via the Power of Siberia pipeline.
A much more viable and politically, less-toxic alternative of Russian gas reaching Europe is to connect Central Asian fields with the European Market via connection to the Southern Corridor route. The corridor consists of three independent pipelines, transiting gas from Azerbaijan through Georgia, into Turkey and finally, Italy, through Albania and the Adriatic Sea. Turkmenistan is endowed with the sixth largest natural gas reserves in the world (and the most in Central Asia). The planned Trans-Caspian pipeline would connect Turkmenistan to Azerbaijan, helping to feed the Southern Corridor, and subsequently Europe. Such a move would open up Turkmenistan’s long untapped natural gas reserves and flood in much-needed FDI to improve its poor energy transport infrastructure. After noting Gazprom’s ownership of Turkmen pipelines and acknowledging EU goals of diversifying, it becomes clear that a potential consensus is possible. Provisionally, estimates suggest 30bcm per year could be pumped into Azerbaijani from Turkmenistan, and with EU demand growing slower than expected, there is no rush. European nations such as Romania should not be overlooked as potential future contributors to future energy diversification plans. With increased production on the Black Sea, a role as local energy guarantor could perhaps bear fruit.
In conclusion, proponents of Nordstream 2 should remain for now, quietly confident. The united US Congress and Presidency are taking a firm line on Russia, disrupting progress, but it seems unlikely they would crush the final stages of the project. I believe they will lean on Germany and EU partners to try to force concessions to compensate and protect Ukraine. Merkel’s strong defence of the pipeline is so far, remarkably unwavering. How much pressure she and her likely successor can withstand is yet to be seen. Much of this depends on Putin’s actions regarding Navalny and Ukraine in the next year. Eastern Europe, and particularly Ukraine remain highly vulnerable and extremely fragile- but also important for EU and US foreign policy makers, and must use this advantage fight for concessions to survive, through integration into EU energy markets. Russia is the only winner from Nordstream 2. Putin will not be concerned what level of resources and capital are wasted in this endeavour, as the political rewards are irresistible. I believe Nordstream 2 will be completed, but certainly not on time and perhaps not how Moscow first envisaged.
What is the probability that the risk will materialise? 2/3
Currently at over 95% completion, and with strong support from Merkel, the last sections of pipeline appear likely to be completed. The US have the power to sink the project, but are yet to make a decisive move. Much depends on potential surprises in the upcoming German federal elections and the level of Biden’s foreign policy aggression.
What is the predicted size of impact? 3/3
The completion of Nordstream 2 is bound to transform the balance of power in Europe. Russian political and economic leverage will be consolidated, with Ukraine and other parts of eastern Europe facing even harsher economic conditions and a significantly weakened geopolitical position.
What is the expected speed of onset? 1/3
Despite support from Merkel’s grand coalition, the US are likely to disrupt and prolong the final stages of constriction through targeted sanctions. The pipeline is already behind schedule, with the US will seemingly showing no signs of relenting.
Will regional or non-regional actors be involved? 3/3
By definition, this initiative is of global concern. Whilst Russia and, to a lesser extent, Germany remain the beneficiaries, the US is a major stakeholder due to its role as European security guarantor and de-facto leader of NATO. Regional EU actors are deeply involved, primarily in opposing the project.
What is the probability of spill-over? 1/3
This pipeline project has antagonised and divided Europe since its early planning stages. It has already spilled over- infecting policymakers across Eurasia and the US. Any further future spill over is unlikely to include rising powers power in Asia. Spill-over is more probably going to be seen in soon-to-be former transit nations (Czechia, Ukraine, Slovakia) upping the ante in their condemnation of Nordstream 2.
Risk-O-Meter Score: 10/15 (Elevated Risk)